Question

At a stockholder's meeting it is discovered that the CEO of the firm, who is compensated with $25 million in cash, is busy interviewing for jobs with other firms and might as a result take the intellectual property to another firm unless a new offer is made. Several fellow stockholders suggest that the CEO compensation be increased to $30 million. You instead suggest that the CEO be given $15 million in cash and $10 million worth of stocks. The CEO is given your option and accepts the new deal and stays with the firm. Why were you correct in making this suggestion(what problem did you solve?) and why did the CEO accept this offer? explain

Answer 1

Stock option is a popular alternative, to the previous cash-only compensation structure for the executives, as by this they are offered a part of the company's future growth and wealth, which help them feel 'connected' to their work-place.
This gives more job satisfaction than just work alone, as this becomes a part of the incentive compensation, where even the executive will be motivated to work harder as he too will reap its benefits as he will receive a part of the profit. It also stipulates that he needs to be vested in the company for atleast a fixed time and that that improves dedication which is beneficial for company perspective also.

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